Imposing duties on Chinese cars would lead to financial losses.
Europe is bracing for a potential onslaught of inexpensive electric cars from China, spurring discussions about implementing anti-dumping duties in the EU. Should these measures be put in place? What counterarguments might exist?
In a departure from formal economic theories, Charles Darwin herself laid out the argument that anything contrary to nature eventually disappears. Her insight can be easily applied to the free market; even the most stringent regulations, price controls, or protective tariffs fail to stymie the market's ability to circumvent imposed constraints. This is evident in Napoleon's Continental Blockade, America's Prohibition, post-war Germany's ration cards, and price recommendations. Thus, the question arises whether German automakers should be protected from government-subsidized Chinese electric cars.
Something momentous is afoot in the global trading landscape. The catalyst was the U.S. government, led by President Joe Biden, escalating tensions with China by raising tariffs on electronic products from 10% to as high as 30%, and electric cars from China to a prohibitive 100%, initially lasting until 2026. This development made the EU Commission worry about a shift in trade as Chinese electric cars, inexpensive due to hefty state support, could flood the European market, threatening European automakers' employment and prosperity. The EU aims to safeguard its domestic market from Chinese electric cars that offer a cheaper alternative. EU Commission President Ursula von der Leyen labeled this practice "market distortion."
Careful Consideration Required
Autumn 2023 saw the EU Commission launch an investigation into whether Chinese electric cars are being subsidized and if such actions warrant anti-dumping tariffs. The decision deadline arrives in mid-July. However, some factors should be contemplated before finalizing the decision:
Notably, more than half of the electric cars sold in Europe are premium models from German manufacturers, including BMW's iX3. Only a negligible market share of purely Chinese cars, which are similarly inexpensive, exists.
Reasons for Reconsideration
There are several arguments against the imposition of EU anti-dumping tariffs on Chinese electric cars:
- The Chinese electric car market's penetration in Europe remains inconsequential. Between January and April, roughly 116,000 purely Chinese cars were purchased in Western Europe, compared to a yearly market volume of 4.01 million. Their market share decreased from 3.0% to 2.9%.
- Chinese electric cars pose no serious threat to the European market. Countries like South Korea and Japan, with a notable presence in the electric car market, present a more significant challenge.
- Anti-dumping tariffs could instigate a trade war between the EU and China, possibly resulting in economic repercussions for both parties.
- The EU's automotive industry already grapples with the transition to electric vehicles, with China's cheap electric car imports making the situation more challenging for European manufacturers.
- The EU's automotive industry already receives considerable support from the European Union, and the imposition of anti-dumping tariffs could undermine the principles of a free market and fair competition.
Germany's electric car market experienced a shift; 111,005 pure electric vehicles (BEVs) were registered during the first four months of 2024, constituting an 11.8% market share. However, only 0.65% of this belonged to Chinese cars, as Chinese electric car manufacturers have reportedly preferred to sell more expensive electric SUVs with profit margins. Contrary to the widespread fear of a flood of inexpensive Chinese electric cars, neither the data nor the market action has supported such a notion. It is crucial to challenge this perceived threat and consider alternative solutions.
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Advocating for Accountability in the Marketplace
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The European car industry is worried about potential tariff fees with Asia, particularly China. BMW's CEO, Oliver Zipse, mentions the potential risk of "hasty reaction." Meanwhile, European automakers are already able to create affordable electric vehicles. Citroën and Dacia are leading this movement, while VW plans to make a 20,000 euro electric car in the near future.
Despite the abundance of low-cost "electric cars," these models are still more expensive than their counterparts using traditional gas engines in terms of performance.
The big concern in the European Union's Commission is: Who deserves protection? The economist might argue that any lawful tariff protection works through higher prices and only benefits increasing supply, not demand. It's not these consumers that need protection – instead, they should be encouraged to spend more on efficient eco-friendly cars. Inexpensive China exports can give people more purchasing power, making cleaner cars more accessible. By intensifying competition and boosting domestic industry, the economy becomes more efficient and provides a better livelihood. The exact opposite occurs with tariffs.
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In light of the EU Commission's investigation into Chinese electric car subsidies, the President of the German Automotive Industry Association, Bernhard Mattes, expressed concerns about potential tariffs, stating, "This would lead to a loss of competitiveness for European carmakers."
Given the minimal market share of Chinese electric cars in Europe, German carmakers like BMW and Daimler are advocating for a balanced approach, arguing, "Protecting our industry from unfair competition need not mean closing the market to Chinese carmakers entirely."
